Tip:
Highlight text to annotate it
X
Interview to CLAUDIO SARDONI Professor of Macroeconomics University La Sapenza ROMA Part 1: Public Debt
Is the public debt the real cause of the crisis?
Absolutely not, rather the rise in public debts is a consequence of the crisis. That
is, is rather obvious that if the economy goes into the recession, the unemployment
increases, the income gets reduced and all this has an effect on public finances. If
unemployment increases, the basic example are the unemployment benefit expoenditures,
they increase. If income is reduced, the tax base is reduced hence the government revenue
reduces. As such thinking of public debt as a cause of the crisis does not make sense.
On the other side, besides the case of Italy which is a particular case to be addressed
specifically, the public debt was not so high in most countries. Only after the crisis these
debts soared.
So, saying things as Reinhart and Rogoff, that after 90% threshold of public debt the
crisis erupts. And besides all the mistakes they had in their work, such statements do
not make much sense and is as turning the world up and down. Giving an opposite interpretation
of the facts.
Then, that a high public debt ratio over GDP can be problematic factor is another issue,
is not the cause rather a consequence. Also, when we speak about public debt and crisis,
if we want to connect them we have to look at total debt, both public and private. If
we look at total debt, usually coiuntries that have a high public debt have low private
debt and viceversa. Hence we have to look at total debt. Why we have such high debt
is another question, for example in U.S. high household indebtedness was given by ither
factors that together brought the crisis.
Said that, i.e. public debt is not the cause of the crisis, but this does not mean that
a high public debt is not a problem. It is a problem anyway. We can speak about it later.
In my opinion is not correct to think that whathever the public debt ratio we can ignore
it. I think that high debt is a problem, not for the reasons promoted by mainstream economists,
but others.
In sum, high debt, is not the cause but a consequence of the crisis. Subtitles by Ernest Dautovic